US defense contractors were hit hard after reporting third-quarter results. For example, Lockheed Martin (LMT) said results, and the stock fell from about $378 per share to $326 per share in two days. Northrop Grumman’s (NOC) stock price also fell from $406 per share to about $350 per share in a few days. L3Harris Technologies (LHX) stock price fell after reporting results too, but not as steeply. Many of these stocks are trading below their 50-day moving average and bouncing around near their 200-day moving average. When one sees drops of this magnitude, it is time to dig deeper. Furthermore, all three stocks are dividend growth stocks with long streaks of dividend increases, making them Dividend Contenders. Therefore, these three defense stocks may be ones to look at in greater detail and buy.
Why Did Defense Stocks Drop?
There are a few industry-wide reasons why the US defense contractor stocks dropped so dramatically. There are also company-specific reasons why the stocks drop that I will discuss below.
Withdrawal from Afghanistan
One primary reason is the withdrawal of the US military from Afghanistan. Although the US had only a few thousand troops in Afghanistan, they conducted air and ground missions. This activity required a consistent flow of parts and ammunition. Furthermore, vehicles and equipment required maintenance, and bases needed logistics support.
Lockheed Martin identified Afghanistan as a headwind leading to lower growth rates in the US defense budget and a shift in priorities. In the most recent earnings call transcript, the CEO stated:
This sales trajectory reflects a number of factors, including the continuing effects of the ongoing COVID pandemic and extended delivery timelines across our supply chain, moderating growth rates in the US defense budget, shifts in customer priorities driven by recent events such as the withdrawal of US forces from Afghanistan.
Northrop Grumman and L3Harris did not specifically identify the withdrawal as problematic, but both companies produce platforms, equipment, or munitions used there…
Please read the complete article at my profile on Seeking Alpha for 3 Defense Stocks to Buy.
If you would like notifications as to when my new articles are published, please sign up for my free weekly e-mail. You will receive a free spreadsheet of the Dividend Kings.